The Give Investors Time to Exit US Investments Act

In an earlier posting, I worried that the debt ceiling deal was simply a stop-gap that will allow investors time to exit US investments. A story in today’s Wall Street Journal (Washington’s Haggling Left Wall Street Dangling) examines what investors had been doing last week as the clock to default ticked down:

While politicians haggled, money-market funds, which pride themselves on being one of the safest investments around, rushed to sell securities to raise billions of dollars. They used part of the proceeds to pay higher-than-usual redemptions requests from jittery investors and parked the rest in cash.

The result:

The last-minute Washington deal certainly avoided a ruinous descent into financial chaos. But the discombobulated process that preceded it has scared the markets into inertia and lethargy.

But not quite complete inertia, I believe. Investors will be still looking around for alternative safe-haven investments. At least the deal will give investors time to prepare for the next politically-created debt ceiling crisis in 2013.
Think that won’t happen? Think again. Here are the words of the GOP Senate, (as quoted from the New York Times Caucus blog):

“Never again will any president, from either party, be allowed to raise the debt ceiling without being held accountable for it by the American people and without having to engage in the kind of debate we’ve just come through,” Mr. McConnell said moments before the Senate vote on the deal he worked out to raise the debt ceiling by $2.1 trillion.

In other words, he was giving the investors fair warning that the debt ceiling is now a permanent political hostage.

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